Global Scene

China inflation slumps

China's wholesale price inflation collapsed in November, undershooting expectations by a wide margin and raising the risk that the once-sizzling economy could find itself mired in deflation before long.

Producer price inflation fell to 2.0 percent in the year to November, well down from October's reading of 6.6 percent, the National Bureau of Statistics said on Wednesday.

Economists polled by Reuters had expected a rate of 4.4 percent . The lowest forecast from the 26 institutions polled was for PPI of 3.3 percent.

Consumer inflation figures for November, due on Thursday, are likely to underscore the dramatic retreat in price pressures as energy and commodity costs slide and domestic demand weakens in tandem with the global economic downturn.

Isaac Meng, an economist with BNP Paribas in Beijing, said the drop in factory-gate inflation, which peaked at 10.1 percent in August, was hardly surprising given the drop in raw material costs but that it was no less alarming.

"The situation is quite severe. We are slipping into a deflationary recession risk pretty fast," he said.

The remarkable slackening of inflation, which Beijing declared the top economic problem at the start of the year, has given policy makers a wide berth to cut interest rates and use fiscal spending to revive the economy. But with China already having slashed rates and announced a 4 trillion yuan ($580 billion) stimulus package, concern is turning to whether these measures may prove too little, too late.

BEIJING, Reuters